Cryptocurrencies: poised to take centre stage

International tax and anti-money laundering developments on crypto assets

Cryptocurrencies have been gathering pace ever since the second half of 2019, reaching a monumental breakthrough in the first quarter of 2021 when Bitcoin, the most representative crypto asset, exceeded an unprecedented valuation of 50,000 EUR approx. (along with Ethereum, the second best crypto assets valuing up to 1,600 EUR approx.). Globally, crypto assets encompass more than 8,000 projects (where serious realities are flanked by sham projects) and are worth as much as one Google.

Although crypto assets are still somewhat behind the scenes, and the tax and legal framework is still in the making, they are soon poised to take centre stage in the international business community raising the attention of lawmakers and tax policymakers. Hence, investors and service providers should seize the opportunity to seek out the right tax and legal advice.

From a wealth planning position, the considerable value of some crypto assets, along with an international legal context in the making, requires careful analysis of selected strategic areas including the following:

  • anti-money laundering regulations (particularly with regard to EU jurisdictions)
  • international exchange of information between tax administrations
  • international taxation

Due to the changing face of the crypto assets reality, lawmakers are attempting to pin down certain procedures aimed at increasing the level of transparency on this market. As of today, AML regulations represent the first steps to achieving a standard of practice.

Anti-money laundering (AML) developments

In general terms, the threat posed by the cross-border flexibility of cryptocurrency transactions stems from the fact that, differently from traditional money, users do not need any professional intermediary to intervene. This is where traditional AML policies and the blockchain technology that underlies cryptocurrencies collide as the AML legal framework focuses on intermediaries, who seek to identity suspicious transactions through the customer due diligence procedures.

Considering that the pseudo-anonymity of cryptocurrencies may pave the way for their potential misuse for criminal purposes, in 2018 the fifth EU anti-money laundering directive introduced, for the first time, specific provisions aimed at monitoring the use of "virtual currencies".

In detail, EU resident and established providers engaged in exchange services between cryptocurrencies and fiat currencies as well as custodian wallet providers have been subject to the standard AML obligations that include: (i) customers identification procedures and (ii) obligation to identify suspicious activity for AML purposes. Custodian wallet providers are defined as "an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies".

To this end, cryptocurrencies fall within a rather broad new definition of "virtual currencies" introduced in the EU AML directive: "a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically".

However, anonymity looks set to stay for a fair share of transactions without currency exchange service providers and custodian wallet providers. In order to tackle the misuse of cryptocurrencies:

  • EU States are required to ensure that the abovementioned players are duly registered and should consider the possibility to allow users to self-declare to designated authorities on a voluntary basis, and
  • by January 2022, the EU Commission should propose, where appropriate, empowerments to set-up and maintain a central database registering users’ identities and wallet addresses accessible to FIUs, as well as self-declaration forms for the use of "virtual currency" users.

The amendments provided by the fifth EU AML directive have a limited scope, as they do not specifically address all types of crypto-assets (but only cryptocurrencies) and do not cover crypto-to-crypto exchangers. Nonetheless, a new update of said directive should be discussed in 2021.

Lawmakers are attempting to pin down certain procedures aimed at increasing the level of transparency on the crypto assets market.

From an investors' standpoint, the expanding AML legal framework is an inevitable development that should be welcomed as an opportunity to increase and facilitate circulation of cryptocurrencies in order to bridge the existing gap between the latter (still qualifying as barter or reciprocal transactions particularly for tax purposes internationally) and fiat currencies (which are a legal means of payment). Looking ahead, investors and holders of cryptocurrencies as well as the above-mentioned service providers should seek legal advice to address AML to enhance their potential profitability arising from their trading activities.

Internationally, it is noteworthy to mention that some banks have started to update their policies relating to cryptocurrency holders considering to fully / partially cash out their investments and switch to traditional finance. Specific protocols dedicated to the most popular cryptocurrencies and exchangers are already in place. Indeed, in this respect, a key role is played by the supporting documents showing the source of funds and the transaction history confirming the increase of cryptocurrency amounts and values in the hands of an investor. The biggest exchangers and wallet providers have already implemented client due diligence procedures based on high standards available and support their customers with personalised services to document the transactions history for the above purposes.

Such developments on AML regulations are bound to affect other practice areas that are strictly related to them such as the international agreements and directives on the exchange of information between tax administrations. In fact, it is noteworthy that, at EU level, member States are required to allow their respective tax authorities to access the information and documents collected for AML purposes pursuant to the EU AML directive and to share the same with the competent authorities of other EU Member States.

International exchange of information between tax administrations (CRS)

The great variety of players and trading platforms actively involved in the transfers of crypto assets, and the quasi-financial nature of the latter (with particular regard to cryptocurrencies) is raising an important debate on whether the same should fall within the scope of the international automatic exchange of financial information between tax administrations.

Starting from 2016, the so called "common reporting standard" (CRS) developed by the OECD provides an international framework and standards for countries to gather and exchange information with respect to foreign financial accounts. The purpose is to increase global tax transparency and efficient tax administration. CRS was inspired to FATCA which is the first system of automatic exchange of financial information globally implemented by US in 2010 on a bilateral basis.

The expanding AML legal framework should be welcomed as an opportunity to increase and facilitate the circulation of crypto-currencies.

In essence, under CRS, selected financial institutions are required to report information to the tax administration in the jurisdiction in which they are located. The information consists of details of financial assets they hold on behalf of non-resident taxpayers and the income derived therefrom. The tax administrations then exchange that information with the jurisdiction(s) of residence of the taxpayer.

As of today, lacking clear guidelines from the OECD, it is uncertain whether the current legal framework allows to consider exchanges, trading platforms and wallets providers (and alike) as akin to financial institutions required to apply CRS regulations (in the same manner that CRS applies to other foreign financial accounts). Such uncertainty notwithstanding, some service providers, out of an abundance of caution, have already started to request details from clients and users that are relevant for CRS (and FATCA) such as personal identifying information.

Indeed, international bodies are keen on giving a prominent role to intermediaries to provide States' tax administrations with reliable and timely information on transactions involving crypto assets.

In the light of the recent developments on the AML legislation (also supported also by a clear stance taken by the Financial Action Task Force on money laundering), the OECD recently remarked that it is opportune to consider the manner and extent to which this sector should be covered by the CRS, given that the AML/KYC documentation is a cornerstone of the CRS due diligence procedures.

Moreover, on July 2020, the EU Commission officially announced that in 2021 it will endeavour to update the directive on administrative cooperation to cover crypto assets and e-money. A public consultation (from March 2021 to June 2021) was launched accordingly to help the Commission determining whether an EU legislative initiative to target tax revenue losses due to the underreporting of income/revenues generated by crypto-assets and e-money is needed. In this respect, the public consultation states that there is a risk of under-reporting or no reporting of taxable income, leading to a loss of tax revenues, and possibly distorting competition with traditional financial instruments which could also have the potential of becoming a vehicle for the shadow economy.

In such context, the CRS seems likely to be expanded to crypto assets and the tax and legal implications of the upcoming developments should be considered accordingly in light of the substantial volume of information that could henceforth become available to the tax administrations of the CRS participation countries.


As things currently stand, the taxation of income or gains arising from crypto assets remains a matter of the national tax law of each State authority and more generally still an uncharted territory.

Internationally, a first official attempt to shed some light on the approaches taken by States with regard to the taxation issues concerning crypto assets was carried out by the OECD. In detail, on October 2020, the OECD issued an overview of the tax treatment and emerging tax policies based on the responses to a questionnaire filled in by more than 50 countries concerning the definitions of cryptocurrencies for tax purposes and key taxable events under income taxes and VAT.

Such survey addressed several areas of taxation including income tax and value added tax.

For income tax purposes, according to the survey, taxable events (across the participating countries) include: (i) the creation of cryptocurrencies and (ii) the exchange of the same with fiat currencies, other cryptocurrencies or goods/services. In many countries, the tax treatment of transactions in cryptocurrencies also varies depending on the status of the taxpayer (if arising outside of a business activity, it is generally characterised as capital gain or other income). As of today, regulators and competent authorities have barely addressed the tax implications of decentralised finance..

For value added purposes, an important role was played by the European Court of Justice which in case no. C-264/14 “Hedqvist” issued the first decision of the VAT treatment of certain services concerning cryptocurrencies (in particular as VAT exempt services). In a nutshell, according to the OCED survey, the exchange of cryptocurrencies (with other cryptocurrencies or fiat currencies) is generally exempt and the use of cryptocurrencies to acquire goods or services is outside the scope of VAT; however, the supply of taxable goods and services paid with cryptocurrencies remains subject to VAT as appropriate.

Moving forward

The current uncertain tax treatment of crypto assets (and more specifically incomes arising from the investment in cryptocurrencies) is compelling entrepreneurs and investors to identify those jurisdictions whose tax system can already grant an acceptable degree of certainty and protection.

Lacking best practices and clear international tax guidelines, investors' approaches may vary substantially depending on personal circumstances and needs. One instance is "bullish" investors who are interested in stability, discretion and adequate asset protection, while those intending to cash out their investments are in the quest of favourable tax regimes available to them.

In such context, the tax competition among EU and non EU jurisdictions is at the get-go stage and clear guidelines and regulations could eventually mark the difference in international wealth planning projects involving crypto assets.

The Italian case

As concerns Italy, as of today, crypto assets have been regulated at two speeds. On the AML side, Italy was amongst the early implementers of EU Directives: accordingly, cryptocurrency exchanges and service providers are subject to the standard customer due diligence and related reporting duties on suspicious transactions.

On the tax side, only a few official guidelines have been issued on selected areas and investors may only rely on some (un)official tax rulings of 2018 based on which cryptocurrencies are to be deemed as akin to foreign currency (going even further than the findings of the aforementioned ECJ's "Hedqvist" decision on VAT). Accordingly:

  • proceeds arising from “speculative” exchanges between cryptocurrencies or from cryptocurrencies to fiat currencies should be subject to the standard rules applicable to income arising from trades of foreign fiat currencies (i.e. subject to a flat 26% substitutive tax for Italian resident individuals / non-commercial entities and to the standard corporate income tax for Italian resident / established entities); similar rules apply to proceeds arising from trades of utility tokens; and
  • the “market value” of cryptocurrencies is to be annually reported as if the same assets are held abroad by Italian resident individuals / non-commercial entities (the omission is potentially subject to a penalty ranging from 3% to 15%).

A few practitioners have criticised such approach considering it highly inconsistent with the key features and the inner nature of cryptocurrencies. In effect, Italian standard tax rules applicable to the fiat currency are not fit for cryptocurrencies, which are extremely volatile, far from being generally accepted as means of payment and often hard to convert to the fiat currency (due to money laundering concerns). Eventually this could result in a burdensome taxation on an accrual basis rather than on a cash basis (as it is instead for fiat currencies). In this respect, the aforementioned OECD's survey of October 2020 too suggests that excluding exchanges between different types of virtual currencies from income tax consequences may also ease compliance requirements, while still ensuring that gains are taxed when tokens are converted into fiat currency or used to purchase goods and services.

The taxation of income or gains arising from crypto assets remains a matter of the national tax law of each state authority and is still an uncharted territory.

Others highlighted that Italian annual reporting duties (generally applicable to assets held abroad) are in contrast with the nature of crypto assets, which cannot be located in a specific jurisdiction. Moreover, some authors pointed out that no tax reporting obligations should arise if an Italian tax resident holds the private key in a cold wallet physically located in Italy.

Nonetheless, as things currently stand, new Italian tax residents holding cryptocurrencies may consider assessing the potential benefits available to their specific case under the so-called “new residents tax regime”. In detail, pursuant to such regime: (i) Italian-source income and gains are taxable in the usual way, (ii) foreign income and gains are sheltered from Italian taxation, (iii) foreign assets are neither subject to the standard reporting duties nor to Italian inheritance and gift tax (as well as property taxes) and (iv) no remittance taxation mechanisms apply. The main conditions to benefit from this regime are that the new resident (i) has not been Italian tax resident for the last 9 out of 10 years (before the relocation to Italy) and (ii) pays an annual charge of €100,000 (which can be increased by €25,000 per each family member relocating with them to Italy under the regime).

Hence, the Italian tax authorities' current approach (also confirmed in their reply to the OECD's survey issued in October 2020) may have opened the door to possible wealth planning strategies valuable at an international level.

The UK case

The UK's tax authority, Her Majesty's Revenue and Customs (HMRC) was one of the first tax authorities to issue guidance on crypto-assets, albeit very basic guidance, as early as 2014. Since then, fuller guidance has been provided in respect of both individuals and businesses, first in 2018 (updated in 2019 to include much-needed commentary on the location of crypto-assets) and most recently in late March 2021, as a formal manual, suggesting the increased frequency with which HMRC is now encountering these assets.

The latest research by the UK's Financial Conduct Authority found that approximately 4% of the UK population are invested in crypto-assets of any kind, with the majority of retail investors viewing them as a speculative investment.  From a tax perspective, the status of crypto-assets in the UK has long been as an asset rather than as a currency (in contrast to Italy), following the Bank of England's view that crypto-assets do not bear any of the hallmarks of money. Initially, HMRC considered that investing in crypto-assets could be sufficiently speculative as to constitute gambling, the proceeds of which are not subject to tax in the UK. However, in 2018, this position was reversed.

Crypto-assets are primarily taxed on the occurrence of a disposal, which includes crypto to fiat trades, crypto to crypto trades, using crypto-assets to pay for goods or services, and gifts. Helpfully HMRC confirm that no disposal will occur where an individual simply moves his or her crypto to a different wallet without the ownership of the tokens changing hands. In most cases, these disposals will be subject to capital gains tax at 10% or 20% on any gain made taking into account the sterling value of the token being disposed of at the date it was acquired and the sterling value of the token it is being exchanged for, if not fiat currency. However, if, exceptionally, the taxpayer is found to be buying and selling crypto-assets in the nature of a trade (eg if the trades are sufficiently frequent or carried out with sufficient expertise) then income tax may be levied on the profits instead, at up to 45%. Crypto-assets are also within the scope of inheritance tax (0% on an individual's available 'nil rate band' amount, currently £325,000, and 40% on any value above this).

Where jurisdictional issues come into play, the position is more complex due to the decentralised, virtual nature of most crypto-assets. If there is no asset underlying a token that is capable of identification under existing rules (eg property, securities, art, gold), as is the case with exchange tokens such as Bitcoin, HMRC will treat an individual's crypto-assets as located in the UK as long as that individual is UK tax resident. Conversely, where a token is underpinned by an existing class of asset, whether tangible or intangible, then the usual rules applying to the location of that asset will apply to the token.  Accordingly, the manner in which an individual stores crypto (eg through a wallet or via an exchange) is largely irrelevant to the determination of where it is situated for tax purposes.

HMRC was one of the first tax authorities to issue guidance on crypto assets, albeit very basic guidance, as early as 2014.

This rule represents a planning point for UK resident individuals with a foreign domicile holding crypto, particularly those claiming the remittance basis of taxation (whereby one can keep non-UK assets outside of the UK tax net, paying a charge of between £0 - £60,000 per year depending on the duration of residence). Unless they take further steps to transfer their crypto-assets to another person or structure, a remittance basis user's crypto-assets will be within the UK tax net regardless of whether they access them from the UK or benefit from them in any way. In addition, a UK resident with a foreign domicile (even if not claiming the remittance basis) holding crypto-assets directly should be aware that their crypto holdings will be within the scope of UK inheritance tax as a UK sited asset. Foreigners living in, or moving to, the UK with significant interests in crypto or with plans to invest in crypto going forwards should seek tax advice to ensure they are able to plan around their crypto-assets effectively.

From a reporting perspective, the UK has also implemented the fifth anti-money laundering directive discussed above, and is highly likely to adopt new measures going forwards to counter money laundering risks as this area develops.


While the swift and exponential development crypto assets as investment assets and their potential applications in several economic sectors has been gathering pace over the last years, experts and economists are still divided between those who believe that crypto-assets are here to stay for long and those who still consider them a form of financial bubble.

Lawmakers and regulators of the vast majority of countries are in the process of reviewing the existing legal framework and considering possible updates in different areas of law and intergovernmental bodies are constantly monitoring this phenomena on a global scale to tackle the misuse and abuses and highlight the potential risks for investors' savings.

In this context, considering the large values accrued by cryptocurrencies (i.e. the most common type crypto assets currently available), it is the right time for entrepreneurs and investors to start reviewing their businesses and investment from a legal standpoint in order to cope with the developments in terms of compliance, reporting and taxation that are likely to occur in the near future on a global scale.

In detail, AML, international exchange of information and taxation are interconnected fields of law that need to be addressed consistently: on the tax side, a clear legal framework may eventually pave the way for legitimate tax planning opportunities to consider carefully.

Written by Giorgio Vaselli, Special counsel, Withers Worldwide and Lauren Rapeport, Associate, Withers for International Accountant magazine.


From an investors' standpoint, the expanding AML legal framework is an inevitable development that should be welcomed as an opportunity to increase and facilitate circulation of cryptocurrencies in order to bridge the existing gap between the latter (still qualifying as barter or reciprocal transactions particularly for tax purposes internationally) and fiat currencies (which are a legal means of payment). Looking ahead, investors and holders of cryptocurrencies as well as the above-mentioned service providers should seek legal advice to address AML to enhance their potential profitability arising from their trading activities.